(1)   Basis of Presentation

The accompanying condensed consolidated financial statements include all the accounts of Liberty Media Corporation and its controlled subsidiaries (formerly named Liberty Spinco, Inc.) ("Liberty" or the "Company" unless the context otherwise requires).  All significant intercompany accounts and transactions have been eliminated.

Liberty, through its ownership of interests in subsidiaries and other companies, is primarily engaged in the media, communications and entertainment industries primarily in North America.  The significant subsidiaries include Sirius XM Holdings, Inc. ("SIRIUS XM"), the Atlanta National League Baseball Club, Inc. ("ANLBC") and TruePosition, Inc. ("TruePosition").  Our significant investments accounted for under the equity method include Charter Communications, Inc. ("Charter") and Live Nation Entertainment, Inc. ("Live Nation").  See the discussion below regarding the subsequent completion of the spin-off of Liberty Broadband Corporation.

The accompanying (a) condensed consolidated balance sheet as of December 31, 2013, which has been derived from audited financial statements, and (b) the interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. The results of operations for any interim period are not necessarily indicative of results for the full year. Additionally, certain prior period amounts have been reclassified for comparability with current period presentation.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in Liberty's Annual Report on Form 10-K for the year ended December 31, 2013.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company considers (i) fair value measurement, (ii) accounting for income taxes, (iii) assessments of other-than-temporary declines in fair value of its investments and (iv) the expected depreciable lives of satellites and spacecraft control facilities to be its most significant estimates.

In May 2014, the FASB issued new accounting guidance on revenue from contracts with customers.  The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a retrospective or cumulative effect transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016.   The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have its financial statements and related disclosures.

Liberty holds investments that are accounted for using the equity method. Liberty does not control the decision making process or business management practices of these affiliates. Accordingly, Liberty relies on management of these affiliates to provide it with accurate financial information prepared in accordance with GAAP that the Company uses in the application of the equity method. In addition, Liberty relies on audit reports that are provided by the affiliates' independent auditors on the financial statements of such affiliates. The Company is not aware, however, of any errors in or possible misstatements of the financial information provided by its equity affiliates that would have a material effect on Liberty's condensed consolidated financial statements.

Liberty has entered into certain agreements with Liberty Interactive Corporation (“Liberty Interactive”), Starz and Liberty TripAdvisor Holdings, Inc. (“TripCo”) all of which are separate publicly traded companies, in order to govern relationships between the companies. None of these entities have any stock ownership, beneficial or otherwise, in any of the others. These agreements include Reorganization Agreements, Services Agreements, Facilities Sharing Agreements, a Lease Agreement (in the case of Starz only) and Tax Sharing Agreements.

The Reorganization Agreements provide for, among other things, provisions governing the relationships between Liberty and each of Liberty Interactive, Starz and TripCo, respectively, including certain cross-indemnities. Pursuant to the Services Agreements, Liberty provides Liberty Interactive, Starz and TripCo with general and administrative services including legal, tax, accounting, treasury and investor relations support. Liberty Interactive, Starz and TripCo reimburse Liberty for direct, out-of-pocket expenses incurred by Liberty in providing these services and, in the case of Liberty Interactive and Starz, Liberty Interactive's and Starz's respective allocable portion of costs associated with any shared services or personnel based on an estimated percentage of time spent providing services to each respective company, while TripCo pays an annual fee for the provision of these services. Under the Facilities Sharing Agreements, Liberty shares office space and related amenities at its corporate headquarters with Liberty Interactive and TripCo.  Under these various agreements approximately $4 million and $6 million of these allocated expenses were reimbursed to Liberty during the three months ended September 30, 2014 and 2013, respectively, and $12 million and $15 million for the nine months ended September 30, 2014 and 2013 respectively.  Under the Lease Agreement, Starz leases its corporate headquarters from Liberty.  The Lease Agreement with Starz for their corporate headquarters requires a payment of approximately $3 million annually, subject to certain increases based on the Consumer Price Index.

On January 18, 2013, Liberty settled a block transaction with a financial institution taking possession of an additional 50,000,000 common shares of SIRIUS XM as well as converting its remaining SIRIUS XM Convertible Perpetual Preferred Stock, Series B-1, into 1,293,509,076 shares of SIRIUS XM Common Stock.  As a result of these transactions Liberty holds more than 50% of the capital stock of SIRIUS XM entitled to vote on any matter, including the election of directors.  This resulted in the application of purchase accounting and the consolidation of SIRIUS XM in the first quarter of 2013 and the recognition of a $7.5 billion gain on the transaction.  We note that in periods prior to a controlling interest, SIRIUS XM was treated as an equity method affiliate.

On October 9, 2013, Liberty entered into a share repurchase agreement with SIRIUS XM pursuant to which SIRIUS XM agreed to acquire 136,600,826 SIRIUS XM shares for $500 million, in three separate tranches between the fourth quarter of 2013 and second quarter of 2014, at a price of $3.6603 per share (which was based on a 1.5% discount to the average of the daily volume weighted average price ("VWAP") per share of SIRIUS XM common stock over a period of ten days beginning on the third trading day following the date of the public release of SIRIUS XM's third quarter 2013 earnings subject to a cap on the average VWAP of $4.18 and a floor on the average VWAP of $3.64). The repurchase of shares approximated 2% of the outstanding shares of SIRIUS XM on an as adjusted basis as the shares were retired at the SIRIUS XM level.  The first tranche of shares in the amount of 43,712,265 was repurchased on November 14, 2013. The second tranche was delayed and the final two tranches were settled on April 25, 2014 for total proceeds of $340 million. The retirement of SIRIUS XM shares on a consolidated basis did not significantly impact the consolidated results as it only required an adjustment to noncontrolling interest as the shares were repurchased and retired. Liberty still retains a controlling interest in SIRIUS XM following the completion of the share repurchases.

In May 2014, SIRIUS XM entered into an accelerated share repurchase agreement ("May ASR agreement") with a third-party financial institution to repurchase up to $600 million of its common stock.  Under the May ASR agreement SIRIUS XM prepaid $600 million to a financial institution and received an initial delivery of 112,500,000 shares of its common stock and final delivery, during August 2014, of 39,346,125 shares.  Approximately $94 million of the prepaid May ASR Agreement was returned upon the final settlement.  In August 2014, SIRIUS XM entered into another accelerated share repurchase agreement (“August ASR agreement” and together with the May ASR Agreement, the “ASR Agreements”) to repurchase up to $250 million of its common stock.  Under the August ASR Agreement SIRIUS XM prepaid $250 million and received 51,884,795 shares of its common stock prior to September 30, 2014 which were retired upon receipt.  The remaining $68 million under this ASR agreement is included in noncontrolling interest within the unaudited condensed consolidated balance sheets as of September 30, 2014.   The August ASR agreement settled in October 2014 and SIRIUS XM retired an additional 19,431,708 shares of its common stock.  The aggregate purchase price paid under these ASR agreements and the total aggregate number of shares repurchased under the ASR agreements which were determined based on the VWAP of SIRIUS XM common stock minus a discount during the term of the ASR agreements.

Liberty’s board previously approved the issuance of shares of its Series C common stock to holders of its Series A and Series B common stock, effected by means of a dividend. On July 23, 2014, holders of Series A and Series B common stock as of 5:00 p.m., New York City, time on July 7, 2014, the record date for the dividend, received a dividend of two shares of Series C common stock for each share of Series A or Series B common stock held by them as of the record date. The impact of the Series C common issuance has been reflected retroactively due to the treatment of the dividend as a stock split for accounting purposes.  Additionally, in connection with the Series C common stock issuance, outstanding Series A common stock warrants have been adjusted.  There are 15,776,000 warrants with a strike price of $87.35 per share, at September 30, 2014

Liberty’s board previously authorized management to pursue a plan to spin-off to its stockholders common stock of a newly formed company to be called Liberty Broadband Corporation ("Liberty Broadband") (the “Broadband Spin”) and to distribute subscription rights to acquire shares of Liberty Broadband’s Series C common stock. Liberty Broadband would be comprised of, among other things, Liberty’s (i) interest in Charter, (ii) wholly owned subsidiary TruePosition,  (iii) minority equity investment in Time Warner Cable, Inc. ("Time Warner"), (iv) certain deferred tax liabilities, as well as liabilities related to the Time Warner call option and (v) initial indebtedness, pursuant to a credit arrangement entered into prior to the completion of the spin-off. 

On November 4, 2014 the Broadband Spin was completed and shares of Liberty Broadband were distributed to the shareholders of Liberty as of a record date of October 29, 2014.  The Broadband Spin and rights offering are intended to be tax-free to stockholders of Liberty.  In the Broadband Spin, record holders of Liberty’s Series A, Series B and Series C common stock received one share of the corresponding series of Liberty Broadband common stock for every four shares of common stock held by them as of the record date for the Broadband Spin, with cash paid in lieu of fractional shares. In addition, Liberty Broadband stockholders, at a future date to be determined by Liberty Broadband’s board of directors, are expected to receive a subscription right to acquire one share of Series C Liberty Broadband common stock for every five shares of Liberty Broadband common stock they received in the Broadband Spin (irrespective of the series of common stock received).  Prior to the transaction, Liberty Broadband borrowed funds under a credit arrangement and made a final distribution to Liberty of approximately $300 million in cash. Liberty expects to account for the Broadband Spin at historical cost due to the pro rata nature of the distributions and Liberty Broadband will be treated as discontinued operations at the time of the transaction in the fourth quarter.

The subscription rights will be issued to raise capital for general corporate purposes of Liberty Broadband and will enable the holders to acquire shares of Series C Liberty Broadband common stock at a 20% discount to the 20-trading day volume weighted average trading price of the Series C Liberty Broadband common stock following the completion of the Broadband Spin.